By Kenneth Ehigiator
Experts have recommended that for a business concern to attract investors into its fold, conscious efforts must be made by the management to secure the right debt-equity mix.
Rising from a forum organised in Lagos for small and medium entreprises by Actis, a private equity investor, panelists at the forum, said “getting the right debt equity mix remained a sure way to achieving optimum growth and reducing risk.”
The forum, entitled “Optimizing Your Capital Structure: The Right Debt /Equity Mix”, is aimed at providing business leaders with informative perspectives on how to optimize the capital structure of their companies by utilizing the right debt and equity combinations and more importantly, focused on providing insights on how to access equity and debt in difficult capital markets environments as Nigeria.
According to the panelists, drawn from Afriinvest, FCMB, and Stanbic IBTC, amongst others, it is good for businesses seeking credit to have the appropriate type of debt instrument and structure to match the cash flow profile of the business or project.
They noted that though credit and equity were available to attract businesses and their promoters, it was imperative for business promoters to keep proper records, especially in view of present harsh investment climates.
The panelists also stressed the need for thoughtful business plans that showcases historical and future business performance to be put in place.
Actis Chief Executive Officer, West Africa, Ms. Ngozi Edozien, had set the ball rolling with an admonition that SMEs should think about what type of funding they require to survive as well as key investment criteria required for private equity investors.
She said: “Securing the right debt-equity mix is a balancing act and is influenced by the cash flow profile of the company and where the company is in its lifecycle.
“Achieving the right balance of the two positions a business for optimum growth reduces risk while increasing returns and the attractiveness of the company to new investors.
“A key issue in our environment is that often, businesses are too focused on one or the other, thereby hampering growth or exposing the business to too much risk.”
She noted that the forum was the beginning of a series of knowledge fora by Actis to bring together CEOs, EDs, CFOs and heads of strategy to discuss important issues affecting the way businesses operate in contemporary times and provide insight on competitive ways to operate in the current economic climate.
Actis is a leading private equity investor in emerging markets with a growing portfolio of investments in Asia, Africa and Latin America and currently has $4.8bn funds under management.
In Africa, Actis has over US$1.5bn funds under management in 17 countries, and over 25 investment professionals located in Nigeria, South Africa, Egypt, Kenya and London.